2 weeks Ago By [email protected] (Reuben Gregg Brewer)
Enbridge ( ENB 1.70% ) is one of the largest midstream companies in North America. That said, it is a Canadian company and a big part of its business is moving Canadian oil and natural gas down into the United States.
With the complex geopolitical issues around tariffs today, that may have some investors worried. Don't get too worked up, though. Enbridge doesn't think tariffs are a big deal.
What does Enbridge do? About three-quarters of Enbridge's business is tied to oil and natural gas transmission assets. That includes pipelines , storage, and transportation facilities that span across North America. According to the company, it moves "about 30% of the crude oil produced in North America" and "nearly 20% of the natural gas consumed in the U.
S." The biggest asset for Enbridge is its Mainline pipeline system. That helps move oil from the Canadian Oil Sands region all the way down to the Gulf Coast.
That may make investors worry that Enbridge will get hit hard by the tariffs that are being proposed by the U.S. government against foreign countries.
That's not an unreasonable concern. One of the current administration's goals is to support the production of U.S.
energy. Given that Enbridge is transporting oil and gas from Canada to the United States, it could very well be in the crosshairs. But it isn't, at least not directly.
Enbridge is a service provider, not an oil driller The first big factor to understand is that Enbridge simply moves oil and natural gas, getting paid a fee based on the volumes that pass through its system. It doesn't really care about the price of oil and natural gas and the taxes involved are really the responsibility of the company that owns the oil Enbridge is moving. The impact on Enbridge will really only show up if there's a material drop in the volume of commodities it moves.
A big volume decline could happen, but Enbridge is skeptical that it is likely. Energy isn't an optional thing in modern society, it is a necessity. Even under tariffs, people and companies will still need oil and natural gas in vast quantities.
In fact, Enbridge had more oil and gas to move than it had the capacity to move in the fourth quarter of 2024, leading to what is called apportionment. Basically, it moved as much as it could and customers had to take what capacity they could get. Meanwhile, the nature of the energy industry is pretty important, too.
Energy-processing facilities are designed to handle certain qualities of input. So they can't simply change to oil from a different region if they are set up to handle oil from the Canadian oil sands. So even if tariffs come increasingly into play, there's a good chance that the companies moving the oil will have no choice but to absorb the hit (or pass it on to end customers) if they want to keep operating their energy facilities.
You can never say never, so there is a chance that volumes will fall across Enbridge's pipeline business. That would be bad for earnings, but there's an offset here to consider. In addition to pipelines, Enbridge also operates regulated natural gas utilities in Canada and the United States.
And it has a small division dedicated to renewable energy . Together these divisions represent about a quarter of Enbridge's business. They should be relatively immune to the impact of tariffs.
Enbridge is well positioned to handle the tariff situation All in, tariffs are something that investors need to watch. However, they aren't likely to be a very big deal for Enbridge because of its business model, the nature of energy, and the company's diversification. While uncertainty is high today on the geopolitical front, it doesn't look like it will be a big problem for this high-yield stock.
In other words, Enbridge's 5.9% dividend yield looks just as secure as it has for the past three decades, each and every one of which included a dividend increase..
